UK inflation reaches its highest level in eight months, increasing the pressure to keep interest rates high
Inflation in the UK has risen to 2.6% in November, the highest in eight months. This is mainly due to higher grocery prices and an increase in tobacco taxes in the budget.
The consumer prices index (CPI) went up from 2.3% in October to 2.6% in November, which was in line with economists’ predictions. This pushes inflation further above the Bank of England’s 2% target for the second month in a row.
The Bank of England is expected to keep interest rates steady at 4.75% when it meets on Thursday to decide on borrowing costs.
The Bank had predicted that inflation would increase towards the end of the year after briefly dropping below 2% in September. Inflation had previously decreased from a high of over 11% in the second half of 2022, following Russia’s invasion of Ukraine, which caused a spike in energy prices.
However, there are signs that the economy is slowing down. The gross domestic product (GDP) unexpectedly dropped by 0.1% in October. Business surveys also show that employment is falling at the fastest rate since the global financial crisis of 2009, excluding the Covid pandemic.
Andrew Bailey, the Bank’s governor, has said that how businesses respond to the government’s increase in employer national insurance contributions (NICs) in the autumn budget is the “biggest issue” facing the economy.
In October, Chancellor Rachel Reeves said that the employer National Insurance Contribution (NIC) rate would go up from 13.8% to 15% in April. This increase is expected to raise £25 billion for the government to help cover a budget gap caused by the Conservative Party.
Business leaders have warned that this decision will lead to job cuts and force companies to raise prices to cover the higher costs.
In November, the Bank reduced interest rates for the second time, even though it warned that Reeves’s budget could lead to higher inflation in the short term, while helping the economy grow.
The Bank of England increased borrowing costs from a very low 0.1% in December 2021 to 5.25% because inflation was rising. While inflation is expected to stay above 2% next year, many economists think the interest rate could be reduced to around 4% by the end of 2025.
Published: 18th December 2024
Also Read:
UK businesses cut staff quickly after budget announcement
SXSW arts & tech festival moves from Texas to East London.
How to Make the Best Sugar Cookies for Christmas Gift Recipe
